Shareholders sue CrowdStrike over massive software failure

Shareholders are suing CrowdStrike, alleging that it defrauded them by concealing that insufficient software testing may have caused the July 19 outage that crippled more than 8 million computers.

In a proposed class action lawsuit filed Tuesday evening in federal court in Austin, Texas, shareholders said they learned that CrowdStrike’s claims about its technology were materially false and misleading after a faulty software update crippled airlines, banks, hospitals and emergency services around the world.

CrowdStrike’s stock price was reported to have fallen 32% over the next 12 days, causing a loss of $25 billion in market value. As soon as the fallout became public, CEO George Kurtz was subpoenaed to testify before the US Congress, and Delta Air Lines reportedly hired renowned attorney David Boies to pursue compensation.

The complaint cites statements including from a March 5 conference call in which Kurtz described CrowdStrike’s software as “proven, tested and certified.”

In a statement Wednesday, Austin-based CrowdStrike said: “We believe this case is without merit and will vigorously defend the company.” Kurtz and Chief Financial Officer Burt Podbere are also defendants.

The lawsuit, filed by Plymouth County Retirement Association of Plymouth, Massachusetts, seeks unspecified damages to holders of CrowdStrike’s Class A shares between November 29, 2023 and July 29, 2024.

Shareholders often sue companies after unexpected negative news causes stock prices to fall. CrowdStrike could face more lawsuits.

Delta Chief Executive Ed Bastian told CNBC on Wednesday that the outage had cost his airline $500 million, including lost revenue, compensation and hotels for stranded passengers.

CrowdStrike shares ended Wednesday down $1.69 to $231.96. They closed at $343.05 a day before the outage.

The case is Plymouth County Retirement Association v CrowdStrike Inc et al, United States District Court, Western District of Texas, No. 24-00857.